Whatever our national fascination with decay, when it comes to railroads, Americans seem decidedly to prefer the history of our boom years—of mustachioed barons and valiant strikers, Promontory Point and the Iron Horse—to those of subsequent decline. Books on the early years of rail are ubiquitous; those of more recent years are as common as Pullman cars.
Passenger rail occupies an outsized share of public attention, and its Magnificent Ambersons-like tale of the automobile’s triumph often occludes any awareness of the very different afflictions and fortunes of freight rail over the 20th century. Competition from other modes of transport was unquestionably the ruination of most passenger rail, but, thanks to Robert E. Gallamore and John R. Meyer, we are reminded that the real villain in the lengthy decline of freight rail was a scheme of Progressive-era pricing regulations that serve to make any affliction of Taggart Transcontinental look realistic.
An assortment of legislative acts between 1893 and 1910, in response to the presumptive predatory nature of the railroads, granted the Interstate Commerce Commission (ICC) a shocking number of powers to regulate nearly every aspect of the railroad business, including (most ludicrously) the setting of rates for different commodities on a uniform basis by region. A carload of wheat would cost a given price for any carrier across a whole region; a carload of coal would similarly cost a fixed price. These rates were adjusted stutteringly—and were quite deliberately rigged—to favor the cheap transport of agricultural goods as opposed to manufactured products or components. Rail companies were forbidden to enter into contracts otherwise.
This system, absurd in any scenario, was at least possibly the product of some genuine market concerns in the early age of genuine railroad monopolies. However, it soon became an immense millstone around the fortunes of American rail in an age of growing competition from trucking and waterway transportation. High-value goods soon forsook opportunistic rail pricing, leaving railroads reliant upon clients paying artificially low values. The ICC employed thousands of rating clerks to keep this charade going: Here was Frank Norris’s octopus, its regulatory tendrils slowly choking the life out of American rail.
While it’s not quite true, in the realm of regulation, to quote Lady Macbeth (“What’s done cannot be undone”), change will generally take a lifetime and usually won’t occur without some calamity as prompting. The 1970 Penn Central bankruptcy proved a shock to the political system, yielding a number of stabilization measures during the Ford and Nixon administrations. Still, in 1976, Conrail lost more money than all the rest of American rail companies combined, a situation that propelled even the Carter administration to decisive, useful action in the form of the Staggers Rail Act (1980), which liberated American rail from its immense burden of price regulation—and rapidly returned a moribund industry to health.
This tale has been told before, most notably in Martin Albro’s Railroads Triumphant (1992), but it deserves a retelling, especially one as substantive as this. The authors, both of whom worked either in the rail industry or as consultants, are frank in their sentiments from the start:
If that isn’t a welcome message, I’m not sure what is.
Along the way, American Railroads is fascinating and idiosyncratic, a history balanced between anecdotal color and rigorous accounting of the unique and changing economics of the industry. It’s a story of considerable ingenuity and change, even in the face of dolorous bureaucratic burdens; of innovations—from the diesel electric locomotive to computerized train controls—and the considerable shifts in rail ownership between the turn of the century’s panoply of lines to the current Big Four.
The economic shifts of the 20th century are fascinating. The railroad went from an industry oriented primarily around the Northeast to one just as concerned with the South and West, and with new directions of shipping—from west to south, for example. Rail company fortunes would rise and fall with economic trends; one decade’s boom commodity might fetch low prices in the next. The decline of Penn Central is attributable, in part, to the collapse of American manufacturing that its networks served. Rail shipping also became increasingly streamlined: Penn Central began to rely on “mixed manifest trains,” made up of cars from different sources that required lengthy shipping, while more nimble operators inclined towards modal shipping containers from a single source.
Other modes of transportation were an unquestionable threat to railroad health. The Interstate Highway system was an immense boost to trucking, and, to add insult to industry, railroads operated over tracks that were their own financial responsibility while other shipping methods benefited from public roads. (Many would argue that the gasoline tax doesn’t recoup the road damage done by heavy shipping.) Waterway improvements were another source of government subsidy: No fees were levied upon waterway shippers for maintenance until 1980!
Railroads were caught in a double bind: They remained oppressed by regulations that assumed their nature as a natural monopoly to be universal (as in the case of trucking) or regional (in the case of barges), and competitors received direct or indirect federal subsidies. Handicapped as they were, railroads recognized that the age of shipping required innovation, and they shifted to substantial multimodal efforts, reconfiguring cars and constructing intermodal yards to ease the transfer of goods from long-haul routes, where railroads often possess a competitive advantage, to shorter routes, where they generally do not.
The Staggers Act initiated a striking revival of American rail. And despite cries of protest from the usual parties, the productivity of rail shipping increased markedly, rates fell, and profits stabilized—all on the basis of resources a fraction of those once utilized. “In 1900,” Gallamore and Meyer write, “railroads employed 1,018,000 persons—one of 29 U.S. nonfarm workers. By 2000, railroads employed only 246,000 workers, one of 553.” And yet rail continues to carry some 40 percent of intercity freight traffic. The seemingly permanent decline of rail was rapidly arrested. Conrail, for one, quintupled its market capitalization between 1987 and 1999: “A few high-tech firms may have done as well in a comparable timeframe, but this was a railroad, and railroads had not been darlings of Wall Street since before the Rough Rider was President.”
If the story of freight rail is simple and straightforward, though, that of passenger rail is complicated. The authors are not admirers of Ayn Rand: They praise safety legislation and appreciate concerns about monopoly control in the early days of rail—and today as well. They note the impossibility of Amtrak’s mandate to maintain break-even service on a network of routes that cannot ever be profitable, but credit the creation of Amtrak as a least-bad option for routing freight rail to profitability. The historical alternative of a complicated system of subsidy to private corporations is hardly appealing.
Gallamore and Meyer recommend creating more regional authorities in corridors where demand might support them (Greater Chicago, the Northeast Corridor, Southern California), on the grounds that these would likely deliver stronger capital investments than would an agency also tasked with satisfying every senator’s yearning for a nearby whistlestop. Amtrak services, permanently unviable, could continue to whatever extent the public wishes to pay for them.
Anthony Paletta writes the Spaces column for the Wall Street Journal.
